SMART PRICING FOR CREATIVE PROFESSIONALS

13 November 2006
Maria Piscopo
Maria Piscopo



At last year's Stretch conference, I had the opportunity to meet Shel Perkins, a management advisor to creative services firms. Shel is a graphic designer, management consultant and educator with nineteen years of experience in managing the operations of leading creative firms in the U.S. and the U.K. He has served on the national board of the Association of Professional Design Firms and has been honored as an AIGA Fellow "in recognition of significant personal and professional contributions to raising the standards of excellence within the design community." His book, Talent Is Not Enough: Business Secrets for Designers, will be published this year by New Riders (www.shelperkins.com for more information).

His workshop at the conference piqued my curiosity since we were both talking about the topic of pricing to an audience of creative professionals. In interviewing him for this column, I found we had many parallel experiences with clients and pricing. I asked him to share highlights of his program that touched on four topics: pricing basics, usage rights, negotiating and preparing proposals.

CA: Walk us through your ideas on 'pricing basics'; I am always surprised when I give my own presentations at the number of working pros that do not have fundamentals such as their break-even point or standard terms and conditions.

SP: Smart pricing involves knowing what each project will cost you to produce. You have to know how much to charge to break even, and you must have a target profit margin built into the standard billing rates that you use to develop preliminary budgets. For planning purposes, this will get you to a 'suggested retail' price. Then you'll make a judgment call and adjust the final project price to reflect market conditions and the ultimate value of the project to the client.

CA: When you reference different types of the pricing model, how do you account for usage rights when a designer does not quote use-based pricing? I have talked with a couple of copyright attorneys as well as from my own experience selling design services - the rule is that 'no usage stated (for the design work) means the client does not get any rights to use the design.'

SP: This is an interesting point. Every designer produces original work that is covered by copyright protection, so every design contract needs to address the issues of ownership and usage. This can be negotiated in different ways, based on who you are and what you are designing. For example, if you are a freelancer who has been brought into a design firm to help them meet a deadline, you probably will be asked to sign a statement defining your contribution to the project as a 'work made for hire,' which means that the design firm will own it right from the start. Or, if the project doesn't meet the work-for-hire criteria, you will be asked for an assignment of all rights - a full transfer of intellectual property rights to the design firm. This will not change the freelance rate that they pay you.

CA: Describe the models you recommend for designers to deal with pricing.

SP: When a graphic designer is negotiating a fixed-fee project directly with a business client (as opposed to freelancing for a design firm), the contract will usually include an assignment of all rights. It might include several types of intellectual property. For example, when a new corporate identity is developed and sold to a client, the sale typically includes an assignment of all rights. That means that the client will be able to do whatever they want with it. The client will go on to complete U.S. and international registration of copyright, trademark, patent and other rights in their own name. Designers should simply charge a higher fee for any project that involves a full assignment of rights, and the transfer should be contingent upon receipt of full payment.

A different model is to include licensing language in the contract. A license is a limited grant of rights to use your work in a specified way. The extent of the license that you grant will vary based on the nature of the work involved. The rights may be limited to use on certain products, in particular media, in a certain territory, and/or for a specified time period. If the client later decides that they need additional rights, they will have to renegotiate with you and pay additional fees.

CA: How does usage pricing for design differ from usage pricing for illustration or photography?

SP: It's usually easier for a graphic designer to make a full assignment of rights because it can be difficult to estimate how many times your work might be used, particularly if you're developing overall formats or templates. However, when it comes to pricing specific content - such as photography or illustration - it s standard to base the price on usage. It s easy to count the ways and times that an illustration will be used.

CA: What are some tips you think work best for creative professionals when they have to deal with a negotiating situation?

SP: Whenever possible, present your proposal in person so that you can explain the contents and answer any questions. Often the initial client response will be to ask for a lower price. It's best for you to avoid getting into a discussion of standard hourly rates. Discuss the scope of work instead. Focus on the main objectives. Can portions of the project be scaled back? Are there components that can be broken out as later projects? Reducing the scope of work will reduce the overall price.

CA: What are the steps you recommend to preparing a 'proposal document' - one that is both irresistible to the client and protects the creative professional?

SP: Start with some general preparation: think about the creative process that enables you to do your best work, calculate a standard hourly rate to be used for internal budgeting purposes, and research appropriate terms and conditions for the type of creative work that you do. The next step is to gather as much advance information about the potential project as you can and to research the client company and their specific needs.

Then you'll be ready to draft an internal project plan, including a budget and schedule. I recommend using an internal planning worksheet to calculate a 'suggested retail' price. This worksheet should accurately reflect your own creative process and your recommended sequence of activities and deliverables for the project. The purpose is to clarify your assumptions about the scope of work, the overall timeframe, required team size and number of hours per person, and any necessary outside services, materials and markups.

CA: What does the client see out of this process?

SP: For most projects, a client proposal document should include: an overview of the client situation (their industry and competitive challenges), the scope of work (the immediate needs to be addressed by this project), the specific objectives that must be accomplished by the end of the project (a short list of bullet points these will be the measures of success), and a detailed description of the process that you are recommending.

Break the process up into phases and steps. Within each phase, spell out what is included and what is not. Identify the deliverables and milestones, the number of creative directions that you will be showing, the number of revisions or refinements that are included, the format for delivery and the amount of time that will be needed. Include separate subtotals of fees and expenses. Along the way, be sure to clarify how clients are integrated into the process - what is expected of them and exactly when meetings, assets and feedback will be needed. At the end, recap the total timeframe, total fees and total expenses (plus any applicable sales or use taxes), and include a billing plan.

Finally, you need to attach an appropriate set of legal terms and conditions. These need to address basic issues such as payment terms, client changes and ownership of intellectual property. For some design disciplines, you may also need supplemental language to address such issues as the use of background technology. When signed, the proposal and the attached terms and conditions will become your binding contract with the client.

CA: I see from your program that you recommend extra items as I do in my workshop. These are added to the pricing information above in order to help the client hire you, to help them decide you are the one for the job. What is on your list?

SP: You may want to include some extra items, particularly if the client's approval process involves routing the proposal to an executive who has not met you. The extras could include capsule bios of senior team members and background information about your firm's capabilities and credentials. Always include a cover letter. It will be written last. Keep it short, professional and enthusiastic. Don t repeat any of the details that are in the proposal itself. The letter is simply an invitation for a follow-up conversation and it should indicate your willingness to update or revise the scope of work if necessary.



About this article
Reprinted with permission by Communication Arts, 2005 Coyne & Blanchard, Inc. All Rights Reserved. Originally published in the January/February 2005 issue of Communication Arts

Copyright Maria Piscopo